Good day, and welcome to the CPS Technologies Q1 2023 Earnings Conference Call. The floor will be open for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Chuck Griffith, CFO and acting CEO at CPS Technologies. Sir, the floor is yours.

Thank you, operator, and good afternoon, everyone. I'm joined today by Anthony Koski, our Corporate Development Officer. And in addition, I'd like to introduce Chris Witty from Darrow and Associates. Many of you have asked about Investor Relations on these calls, and we have made the decision to work with Chris and Darrow moving forward. So I'm now going to ask Chris to provide the Safe Harbor statement. Chris?

Thanks, Chuck, and good afternoon, everyone. Before we begin the business portion of the call, I would like to point out that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be considered as subject to the many uncertainties that exist in CPS' operations and environment. These uncertainties include, but are not limited to, the war in Ukraine, economic conditions, market demands and competitive factors. Such factors could cause actual results to differ materially from those in any forward-looking statement. Additional information can be found in our filings with the SEC. Now I'd like to turn the call over to Chuck to offer his perspectives on the first quarter results. Chuck?

Thank you, Chris. So first, let's address the elephant in the room, and that is the departure of Michael McCormack. So out of respect for Michael and his family and their privacy, I don't want to get into too much detail regarding his resignation. Suffice it to say that we will miss his drive, his leadership and his sense of humor. Michael was an advocate of Jim Collins' book, Good to Great. Collins said, "Make sure you have the right people on the bus and in the right seats." Of the 4 senior managers, 3 were hired during Michael's tenure, and I am very humbled personally by the confidence he showed in retaining me. The point is that I'm trying to make that Michael built a great team not just at the senior level, he made the company stronger and better throughout his tenure, and he will be missed. The Board will, as announced, evaluate a candidate to take his place full time. Due in part to the foundation Michael laid, we are extremely confident that we're headed for another record year. Our business development team, led by Anthony Koski, has been able to maintain a strong book-to-bill ratio in spite of the fact that the denominator billing part of the equation continues to grow. Working with our product development team, led by Dr. Steve Kachur, we've been able to evaluate customer problems and find unique solutions to meet their needs. Finally, under Dan Barton's leadership, our operations team continues to produce technologically complex parts on time and within budget, making it that much easier for Anthony's group to win additional business. Now let's turn to the financial results. Today, we're pleased to announce first quarter revenue rose to $7.1 million for the quarter ending April 1, 2023, compared with…

Thank you, Charles, and hello, everyone. Another quarter of record results is certainly a great way to start 2023. First, I'd like to take this opportunity to echo Chuck's earlier comments on Michael's departure. He has been very influential to the organization and me personally as a mentor and a friend. We wish him and his family all the best and thank him again for his significant contributions. Now some updates on how we're planning for the future of CPS. The business development team and I continue to focus on identifying and penetrating new avenues of growth to scale our operations. In close collaboration with our product development team, led by Dr. Steve Kachur, we are actively pursuing opportunities within the Advanced Materials space, prioritizing high-value projects with significant potential upside. Although the development qualification and overall sales cycle can be long for any material solutions, we are 100% committed to realizing the long-term upside these programs can produce. This long game approach has not prevented us from converting many opportunities into near-term wins, as demonstrated by our strong book-to-bill ratio. Considering this is calculated on a growing revenue number, as Chuck mentioned, makes it even more significant. We remain focused on managing our sales pipeline and ensuring we have an adequate funnel to meet our top line goals for the year. Suffice it to say that the pipeline is growing and diverse. It includes both existing and developing customers and products. I am pleased at the rate we were able to convert in Q1, and I'm optimistic we will be able to hit our sales goals for the year, including solid growth over fiscal '22. A few more highlights from the first quarter. The business development team has expanded. We recently welcomed Joe Englin as our new Senior Business…

At this time, we'll be conducting a question-and-answer session. [Operator Instructions] And the first question today is coming from [Chris Wachowski].

Congratulations on the great results. Can you give us kind of an estimate of how much of your revenues are commercial and how much are there for government military programs?

So sure. I believe that the parts that are going to defense contractors, so we're not selling directly to the government. I'm not sure if that's your question. But the portion going to defense contractors, I want to say, is about 30% to 40% in that range.

Okay. Yes, that's what I was asking about. And my -- the main reason for that is because defense contracts can be volatile in terms of starting and ending up programs. And do you see that kind of volatility coming? Or are you -- it seems like you're in the beginning of programs on all of your products. So it does...

Yes, yes. I'm sorry, finish. Sorry.

Go ahead. Go ahead.

Yes. So we haven't seen that yet. And I think we're actually seeing a growth in that part of our business. The -- we're getting a lot of these defense contractors coming to us with products for the first time, or at least the first time that we're seeing them because of the confidence that we've been building with them. So I think we're actually very excited about the future of the defense portion of our business. I don't know, Anthony, do you want to add anything to that?

Yes. The only thing I would add is, obviously, government contracting and programs can be lumpy. I'll use that as a word to describe it. And so as Chuck alluded to, we haven't seen a significant portion of that yet. But I think that using the armor as a perfect example, we were actively delivering on our program with hermetic protection for the U.S. Navy. And a lot of times with contracts like that, they're significant in scale and then you kind of work them off a bit. And then once you get towards the end, you're working on the next contracting action. So it's all about kind of foreseeing that life cycle of the program and ensuring that we have an adequate pipeline of what’s next to kind of backfill so that we don't see that lumpiness in the business. But yes, we haven't seen a ton of it yet, but we're actively managing and preparing for that cycle.

Okay. That's good to hear. Another question is on the -- more on the commercial side. It might also be the science. But on the non-armor, the electronics side for using your products for cooling plates for electronics. It seems like looking at -- listening to other conference calls, it seems like the power electronics market in industrial power electronics is very strong despite what might be happening with the economy. Are you seeing a corresponding strength there? And is there a possibility for you to move into kind of more mass market applications and to kind of have products that we use for not really extremely high-power devices, but more of -- kind of more plentiful industrial devices that might be lower power?

Yes. I think the answer to that question is yes. We -- what we're seeing is -- I'll give you an example, is the shifts that they're putting on these plates typically have been silicon, and now there's a shift towards silicon carbide. And what that means with silicon carbide, as you may know, it was more efficient than silicon, especially this is important when we get the things like electric vehicles and battery storage and the ability to run further on the same charge. However, the silicon carbide runs at a hotter temperature than silicon. And that makes the AlSiC application more suited towards those middle-range power modules, where the -- where in the past from silicon, you were fine using a copper base plate, for example. But as we get to -- as we start running hotter, then you may want to consider AlSiC. So there was always an area where you always use AlSiC and an area where you always use copper, and then there was a gray area in between. And I think what we're seeing is that gray area is shifting towards using more of an AlSiC solution because of -- as you start developing silicon carbide. So there's certainly -- there are certainly applications. We've certainly been involved in our products going into electric vehicles, which, of course, has a tremendous upside, it appears. And whether what portion of that market we could potentially end up in, I really couldn't say at this point. But it's certainly something that we could see some great results. And Anthony, I'll ask if you want to expand on any of that?

No, I mean, you pretty much covered it, Chuck. It's -- we've made a lot of great progress in engaging with a lot of the semiconductor manufacturers that are trying to heavily utilize silicon carbide, as Chuck described. And just as we mature those discussions and understanding, we're still kind of targeting in that higher end, higher performance applications, [formula-E], military fleet electrification as a few couple of examples. The wider commercial HEV and EV market, as silicon carbide as a material continues to be used more and more to improve efficiencies and power density, it does increase the heat. I mean you're dealing with commercial marketplace and commercial EV, then you're dealing with the price war and you got competition overseas that you're dealing with. So I still see that, at least in the near term, having a big play in those higher end, more extreme applications. But the advance of silicon carbide as a material in those applications has made it even more appealing for our types of materials.

That's great. That's good to hear. And I was hoping that you would say that kind of the cutoff line where your devices applicable is going lower. So can you -- lastly, can you perhaps give us some estimate of what that cutoff line is that you will kind of market a device either by voltage or by power of silicon carbide. Is it like anything over 800 volts or 1,600?

I can't give you that number. I don't know.

I don't know if we have necessarily a specific line, but I think that you're kind of right in that range. So we've always kind of operated in this 1,100 to 1,200 volt. That was kind of where AlSiC started coming to play. And I think with the introduction of silicon carbide, it's probably getting closer to that between 700 to 800 volt. But that's not something that's been a line in the sand that we've kind of drawn to say that this is what we're going to market to, but it certainly expands that area that we have reached to.

[Operator Instructions] And the next question is coming from [Stefan Fasi].

Just a quick question about the vehicle armor. You guys at least -- I'm trying to remember here. But we're looking into the vehicle or working with somebody maybe a couple of years ago. Can you say whether it's the same customer or a different customer without necessarily -- I'm not necessarily asking the name. I'm just wondering.

Yes. [indiscernible]

It is leading to the same customer that we've been working it with right along. At least since in the 4 years since I've been here, it's mainly that 1 customer, so.

There were no other questions in queue at this time. [Operator Instructions] And we did have 1 more question come in. That question is coming from Ron Richards.

I was looking over our previous conference calls. And I noticed in the August 2022 conference call, you were talking about working on the benefits of additive manufacturing and 3D printing. And you talked about post updating your work in that area that you were doing some work for several customers. Any update on that project?

Yes. So we -- one of the SBIRs that we've been working on in the 3D printing, and that one is, I believe, that one is still moving forward. We've also done some internal work with 3D printing. In fact, Dr. Kachur was showing me just yesterday some really complex parts that we made that could be for just a company everybody on this probably has heard us. And so it's very interesting. So I think it's still early to talk about major commercial applications at this point in time. But we're definitely working on it, and we're definitely moving forward with that and think it certainly could be an area that could be very successful for us.

Okay. And also I was wondering what the hermetic deal. Have you guys been involved with Starlink used in your hermetic deals?

Not -- I can take this one. So not directly recently. But a lot of our customers sell into Starlink. But Starlink has been a target of ours for quite some time now, and we're actively beginning to reengage them. We actually kind of just started over the last couple of weeks to reengage them directly. But as I mentioned a few of our customers are selling into Starlink.

Okay. Great. Thank you guys.

Thank you. And there were no other questions in queue at this time. I would like to hand the call over to Chuck Griffith for some closing remarks.

Okay, so. Thank you, Paul, and thank you everybody for getting on the call. It’s been a pleasure talking to you all today and listening to the questions. And as we talked about before, we’re certainly looking forward to another great quarter and another great year for this year. And hopefully we’ll be back here in about 90 days and being able to tell you that we have achieved that goal at least for one more quarter. So again, thank you all for getting on. And with that we’ll close out.

Thank you. And there were no other questions at this time. This does conclude today’s conference call. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.

Thank you everybody.